The concept of willfulness in the context of non-compliance with tax reporting and payment regulations concerning offshore accounts has been a popular topic in legal circles lately. So much so that the American Bar Association recently held a conference dealing specifically with important issues in that arena.
Much of the ABA’s National Institute on Criminal Tax Fraud and Institute on Tax Controversy dealt with the distinctions between the streamlined IRS process for becoming compliant with FBAR and FATCA reporting mandates and the more in-depth Offshore Voluntary Disclosure Program (better known as the OVDP). The streamlined process, known as Streamlined Foreign Offshore Procedures (for non-U.S. residents) or the Streamlined Domestic Offshore Procedures (for U.S. residents) isn’t appropriate for everyone, and those who fear that willful conduct could potentially subject them to criminal consequences should definitely consider the OVDP first.
How does one determine willfulness?
A key component of the streamlined process is a certification by the taxpayer/accountholder that there has been no willful deceit, fraud or otherwise improper conduct involved in the failure to declare foreign account funds. Essentially, they are certifying that they have inadvertently or negligently failed to declare the assets and/or file the required disclosures with the IRS and other taxation authorities.
If, for example, a taxpayer has a foreign account that has, for years, held less than the required disclosure trigger amount of $10,000, but dramatically increased after a one-time deposit, it is entirely possible that the taxpayer simply neglected to file a FBAR or FATCA out of habit. This is a situation where non-willfulness could likely exist, and it is possible that the streamlined process could still be an option.
On the other hand, if a taxpayer has actively taken steps for years to hide the existence of one or more foreign accounts that easily value much more than $10,000, going so far as to not even alert their tax preparer or estate planning attorney about the assets, willful deceit seems a foregone conclusion. In that situation, a streamlined process might not be possible.
The determination about whether a streamlined reporting method or the OVDP is best for you is a decision best made after careful consideration of your circumstances by an experienced tax attorney. Failure to properly declare assets, either foreign or domestic in nature, and pay any necessary tax obligations, can come with significant consequences, including interest, fines, heightened IRS scrutiny in the future and even criminal charges for tax evasion, fraud or other similar offenses.